The rise of technology has benefited the business sector in numerous ways. However, there are certain loopholes that motivate modern-day industries to implement identity verification to counter cyberattacks from cybercriminals. Data privacy breaches and identity theft are one of the big issues that puzzle the corporate world these days. In this light, the global regulatory bodies have strictly emphasized the application of Customer Due Diligence (CDD). The application of AML/KYC compliance puts a lot of financial burden on the organizations but the lack of compliance is even riskier financially. In this regard, companies must focus on the bigger picture rather than the short-term financial gains that they can have.
The Financial Repercussions of Non-Compliance
The RegTech industry has come up with multiple approaches for enterprises and start-ups to tackle the above issues. For instance, there is a KYC (Know Your Customer) procedure and a CDD system for newly onboarding customers. Some financial institutions can avoid implementing the KYC rules because of the high cost but they must know that the price of lack of compliance is even higher than in previous years.
After a thorough investigation in 2019, it was found that Danske and Swedbank were used as a payment transaction medium by a Russian criminal organization. They laundered around $224 billion because they found numerous shortcomings in their security KYC rules system. In this light, the global regulatory bodies incurred a fine of around $16 billion on the financial institutions.
In the case of Barclays, a multi-national bank, they had to pay around 26 million pounds in penalty because cybercriminals laundered around $7 billion from their platform. Standard Chartered Bank also had to pay a huge financial fine because its AML/KYC regulations were not up to date and the institution was not linked with any illegal activity. They were subject to around $125 million.
KYC Rules: Possible Challenges for Start-ups
There are different precautions that KYC/AML regulations emphasize the organizations to follow regularly. For instance, securing the personal data of the clients accurately in the company’s database. This is a critical step to prevent money laundering, identity theft, and terrorism financing. If they do not practice safety, they can be the target of cyber attacks at any time.
In case a company uses a centralized computing system to store data, hackers can use the single point to gain access to the sensitive data of clients. In such cases, it is critical that companies use a decentralized computing system to increase the protection of their client’s data.
According to recent reports, the financial cost of fixing a data privacy breach is around $4.24 million. From the perspective of clients and investors, they lose huge sums of money from such cyber attacks. Consequently, AML/ KYC rules are crucial for the modern-day FinTech industry in order to secure their investments and sensitive data. The application of KYC rules also prevents financial penalties from international regulatory bodies.
KYC Rules System: What are the Top Benefits for Start-ups?
The application of the KYC procedure is about using identity verification measures during the onboarding procedure of the company. It is wise to apply the KYC rules system rather than avoid it due to financial costs. The consequences of non-compliance are far more serious than the actual cost of the process.
Advanced KYC Rules System: Cost-effective
- The manual KYC system had massive expenses because of total human effort but the outcome was dissatisfactory. There were so many errors and it took a lot of time to complete. Even the rectification process was long and hectic for the employees
- With the passage of time, the regulations became more stringent with the passage of time. It implies that companies need more trained professionals to carry out the job. It has raised the fee of application of the KYC rules verification system. However, the cost of implementation is not as big as the cost and other consequences of non-compliance
Digital KYC Rules: Better Efficiency
- In usual circumstances, the manual ID authentication procedure is slow and consumes a lot of resources. These kinds of procedures normally result in onboarding failures that are costly for the companies
- As per the recent survey by Thomson Reuters, if companies do not work on advancing the KYC rules system, customers will immediately switch companies because they do not want to experience frustration. Thus, better efficiency is possible by implementing the advanced KYC rules
Finally, a strong identity authentication system can safeguard the database of a start-up from bad actors. It not only secures the sensitive data of customers but also enhances the brand reputation and prevents financial penalties from global regulatory bodies. The advanced KYC solutions facilitates start-ups in deterring the fraud attempts of hackers. The latest digital solutions boost business operations at comparatively low costs. The application of KYC rules will allow start-ups to only provide services to genuine clients and discourage fraudsters from corrupting the system.